M, N and O were partners in a firm sharing profits and losses equally. Their Balance Sheet on 31-12-2009 was as follows:
|
Liabilities |
Amount(Rs) |
Assets |
Amount(Rs) |
|
Capital: M 70,000 N 70,000 O 70,000
General Reserve Creditors |
2,10,000
30,000 20,000 |
Plant and Machinery Stock Sundry Debtors Cash at Bank Cash in Hand |
60,000 30,000 95,000 40,000 35,000 |
|
|
2,60,000 |
|
2,60,000 |
N died on 14th March, 2010. According to the Partnership Deed, executors of the deceased partner are entitled to:
(i) Balance of partner's capital account.
(ii) Interest on Capital @ 5% p.a.
(iii) Share of goodwill calculated on the basis of twice the average of past three year's profits and
(iv) Share of profits from the closure of the last accounting year till the date of death on the basis of twice the average of three completed year's profits before death.
Profits for 2007, 2008 and 2009 were Rs. 80,000, Rs. 90,000, Rs. 1,00,000 respectively. Show the working for deceased partner's share of goodwill and profits till the date of his death. Pass the necessary journal entries and prepare N's Capital Account to be rendered to his executors.
Journal
|
Date |
Particulars |
LF |
Dr (Rs.) |
Cr (Rs.) |
|
2010 14th March
|
General Reserve A/c Dr
To N’s Capital A/c
(Being transfer of N’s share of general reserve to his capital A/c)
|
|
10000
30000
30000
|
10000
700
60000
12000
152700 |
|
Interest on Capital A/c Dr
To N’s Capital A/c
(Being Interest 5% pa credited to N’s Capital A/c upto 14/3/2010)
|
||||
|
M’s Capital A/c Dr
O’s Capital A/c Dr
To N’s Capital A/c
(Being the share of Goodwill Adjusted)X |
||||
|
Profit and Loss Suspense A/c Dr
To N’s Capital A/c
(Being the transfer of N’s Share of Profit to his capital A/c upto the date of his death) |
||||
|
N’s Capital A/c Dr
To N’s Executor A/c
(Being the transfer of amount due to N’s = 1×5 executor a/c) |
N’s Capital A/c
|
Particulars |
Amount |
Particulars |
Amount |
|
To N’s Executor’s a/c |
152700 |
By Balance b/d
By General reserve a/c
By Interest on capital a/c (70,000 x 5 /100 x 73 /365)
By M’s Capital a/c
By O’s Capital a/c
By Profit & Loss Suspense A/c (90000 x 2x73/365x1/3) |
70000
10000
700
30000
30000
12000
|
|
152700 |
152700 |
Working Note
Calculation of Goodwill = Average Profit x No. of year of Purchase = 9000 x 2 = Rs. 180000
Average Profit = Total Profit / No. Of year = 270000 / 3 = 90000
N’s Share in Good Will = 180000 x1/3 = 60000.